Turkish Startup Ecosystem Stakeholders

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This was the short version of the master plan that Elon Musk posted on Tesla’s website on August 2, 2006.

The intention of the master plan was to illustrate how seemingly separate and independent actions/objectives were all necessary for initiating the development of a “sustainable energy economy”.

Why is this important in 2017?

Well, I was in Kazakhstan in June to speak at the Astana Economic Forum. “New Energy — New Economy” was the main theme of the event.

During the Forum, speakers from all over the world discussed topics in the areas of sustainable economic growth, international trade and infrastructureand innovations and “green economy”.

The EXPO 2017, which is also taking place in Astana, further spurs debates on “Future Energy”. Increased public concern regarding the environment, the depletion of fossil fuels and the impact of global climate change has compelled governments, NGOs and companies into taking action.

The debate mainly focuses on how new and renewable sources of energy (e.g., hydro, wind, solar) are currently replacing fossil fuels and how this process must be accelerated.

This raises a relevant, but often neglected question:

How should we organize and finance “new energy” in the new economy?

This question is difficult to answer. It is clear that the financing of new energy technologies and projects is extremely challenging in a world that so far has been dominated by old energy technologies, policies and companies.

And here is where Tesla (and Elon Musk) comes in.

Why Tesla (and Elon Musk)?

This is a valid question. Apparently, investors, strategists and analysts don’t agree on Tesla. Some view it as a tremendous investment opportunity. They refer to the return on investment you would have made if you had invested in Tesla at its initial public offering on June 29, 2010. Assuming you still had the shares on June 29, 2017, you would have had an RoI of 2,022%.

Others find the increase in Tesla’s stock price alarming. They warn of a potential Tesla Bubble looming, as there appears to be a disconnect between its huge “market capitalization” and “market realities”. For instance, Tesladelivered only 76,000 cars in 2016, had a relatively low revenue (compared to other car companies) of US$7 billion and, perhaps most worrisome, had “again” a significant net loss (of US$ 0.8 billion in 2016).

Source: Statistica and Business Insider

The disconnect has led to two reactions. First, investors express their concerns and try to prevent the bursting of the bubble by urging Tesla to change its governance structures and practices. In particular, they insisted that two new independent directors were added to Tesla’s board of directors.

Second, investors started to bet against Tesla’s stock. It is currently one of the most heavily shorted on Wall Street.

Recently, this strategy started to pay off due to a wave of negativity surrounding Tesla. For instance, the stock slumped when delivery numbers missed expectations (due to the inability to produce enough 100 kWh battery packs) and the Tesla Model S was only rated “acceptable” in a vehicle safety test.

The fear of increasing and fiercer competition (after Volvo announced that it will focus on electric vehicles and stop developing diesel engines in May 2017) added to investor pessimism.

This is surprising. Elon Musk’s company has a competitive brand as electric vehicles replace gas-powered ones over the next decade or so.

Even Volvo’s CEO Hakan Samuelsson acknowledges Tesla’s achievement in creating demand for all-electric vehicles (despite many being against it: most obviously dealers — less maintenance — and car manufacturers that made significant investments in improving diesel and other combustion engines):

“We have to recognize that Tesla has managed to offer such a car for which people are lining up.”

Yet, Tesla’s biggest innovation isn’t the production of electric vehicles, but its success in building and cultivating an “open and inclusive ecosystem” around consumers, investors, competitors, suppliers, innovators and other stakeholders.

In making this claim, I don’t want to argue that Tesla deserves a market cap of more than eight times its revenue. But its open and inclusive ecosystem can explain why investors that have held the stock short since the beginning of 2017 have lost more than US$ 3 billion after six months (according to financial analytics company S3 Partners).

The key takeaway from this? Companies that operate in the sustainable energy economy cannot be understood by using Wall Street’s traditional investment models, strategies and tactics.

So, What Can We Learn From Tesla (and Elon Musk)?

Elon Musk was right when he responded to the concerns of pessimistic investors on Twitter with the following message:

The tweet received approximately 1500 likes and 382 retweets. The 133 responses clearly showed the anti-corporate sentiment and varied from the disadvantages of appointing “independent”, but “uncreative” board members to warnings against “short-term” investors’ interest.

Investors should realize that Tesla isn’t a traditional, closed and hierarchical car manufacturing company. This became again clear on July 18, 2017 when it announced in a company blog post that they added two independent directors to its board: Linda Johnson Rice and James Rupert Murdoch. These directors have no experience in the car manufacturing industry.

As mentioned, Tesla is an open and inclusive ecosystem. Tesla doesn’t follow the “generally accepted corporate rules of doing business”. And this is probably the most important and revolutionary change that Teslaintroduced in the new economy.

What does this mean?

A Technology Sharing Platform

“We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform”

This was written by Elon Musk in a blog post on June 12, 2014. What it basically meant was that Tesla made its patents available to its competitors. Elon Musk believed that sharing its technology would strengthen rather than diminish Tesla’s competitive position.

This idea is not as far-fetched as it first sounds. Tesla wanted to ensure that everybody will drive an electric car in the near future. This will only increase the demand for electricity. And, this is what creates a gigantic opportunity, according to the American mutual fund manager and investor, Ron Baron.

Think about it. The electrical grid isn’t growing. There aren’t many new power plants being built these days. To solve the ever-increasing demand for electrical power, Tesla can use its experience and resources in (solar) energy generation and storage to reinvent the electrical grid. Referring to Tesla’smega-battery factory, Ron Baron predicts that Tesla’s batteries become a network that allows utility companies to deal with the high demand for electricity.

This sharing platform idea is the key thought in Tesla’s business model. The ultimate objective is that the owners of the self-driving and autonomous cars will share their vehicles with Tesla when not using them, enabling the cars to ferry other passengers.

Executives are Entrepreneurs

To meet the challenges associated with inventing and assembling the products and services of the future, Tesla allows (and encourages) its executives to retain their entrepreneurial spirit.

Most of the executives are involved in other companies or have several side projects. For instance, JB Straubel, Tesla co-founder and current CTO, and Andrew Stevenson, Head of Special Projects are behind Redwood Materials, a material recycling startup.

Elon Musk is, besides CEO and Chairman of Tesla, also a Founder, CEO, CTO, Chairman or investor involved in SpaceX, OpenAI, the Boring Companyand other ventures.

The key thought here is that Tesla isn’t characterized by a “stable” organization in which activities are coordinated and controlled by managers who derive their authority from their place within a hierarchical order. Nor is the focus on short-term financial returns.

Rather, Tesla is organized as a constantly evolving autonomous ecosystem that has multiple interacting stakeholders with distinct identities, knowledge and expertise — including executives, other employees and startups. Everyone in this ecosystem is expected to be both more open, more inclusive and more entrepreneurial.

Crucial to this new openness and inclusiveness is the form and content of corporate communication. The heavily manufactured and mediated communication techniques and strategies associated with traditional “corporates” are replaced by a radically different approach. In fact, this new approach to communication is absolutely crucial in building a sustainable ecosystem.

“New Economy” Platforms

To involve its consumers and other stakeholders, Tesla doesn’t make use of heavily “produced” or fabricated marketing and investor relations statements. For instance, it only spent US$ 6 on advertisements per vehicle sold, which is by far the lowest in the industry.

Source: Teslarati

According to Scot Galloway, Professor of Marketing at NYU/Stern School of Business, Tesla figured out that the medium PR and “new economy” platforms can create a new proximity to stakeholders.

Think of the announcement of the Tesla Model 3, the Powerwall 2 and the Solar Roof on YouTube. Besides the large number of views generated, these announcements are surrounded with suspense, resulting in an unprecedented impact and “buzz” around new products.

The effect? People are queuing outside the Tesla stores to order the new model 3 without having seen or driven it.

What is even more remarkable is Elon Musk’s handling of Twitter. He has more than 10.3 million followers.

Source: Socialbakers

Leveraging the Power of Twitter

Elon Musk goes way beyond what most “social media active” CEOs (and there aren’t that many) do on Twitter.

Certainly, his tweets contain “company information and links”, “personal opinions”, announcements of “current and new products”, “references to customers (and their stories and experiences)”, “management initiatives”, “information about strategy and performance” and “external validation, such as awards and outstanding reviews”.

But he does so much more than this.

Here are just some of the techniques that Musk uses:

(1) He enters into an unmediated dialogue with everyone interested in him and his ideas and products. Musk speaks directly with his audience. It is non-hierarchical communication and his words are not mediated by lawyers, PR advisors or other marketing “experts”.

(2) He responds authentically and in a spontaneous, human style that is, at times, emotional and willing to reveal weakness and insecurity, as well as appreciation. What we see is what we get. A personal genuineness is prioritized over projecting a choreographed — and oftentimes artificial — corporate image.

(4) He uses social media to project a vision of both Tesla’s future, but also a lifestyle vision for the future. In this way, social media is absolutely central to the style of leadership that Musk employs.

Skeptics might (and often do) suggest that this is all simply an act and that using social media is a way to avoid the accountability of more traditional avenues of corporate communication. But this view is wrong.

Crucially — and this is (5) — Musk calls upon the “wisdom of the crowd” to have his tweets checked and validated.

The social media “crowd” constantly and relentlessly checking for contradictions and inconsistencies. And if such problems are uncovered, they will call him out on it. In this respect, the accountability of such an approach far exceeds that of traditional corporate communication, which generally occurs within a closed community of experts, many of whom have a vested interest in not checking or revealing inconsistencies or mistakes.

Key Takeaway

So, how should we organize and finance “new energy” in the new economy?

To attract interest and accelerate the development of a sustainable energy economy, it is necessary to build and cultivate an open ecosystem around “new energy” projects and innovations. Sharing, entrepreneurship and a human and open style of communication are absolutely crucial components of this ecosystem.

As with Tesla, it will create a broader community around “new energy” that integrates and engages a diverse range of actors.

Musk understands that traditional business models and strategies simply won’t cut it in the new economy. He understands that the only way to succeed in building a sustainable energy economy is to embrace this new approach to leadership.

Elon Musk is having a moment. Tesla just delivered its first Model 3, the affordable model that he envisioned in his “secret” strategy some 11 years ago. He wanted to build a sports car, then build a more affordable car with zero emissions. He’s basically already there. The Model 3 has mostly rave reviews and a multiyear waiting list, which is quite a feat, even for an industry leader like Musk.

At the core of the confusion over a company like Tesla is that traditional business metrics are outdated and can create overconfidence or underestimation. Classic metrics like market penetration and market share, which many leaders are measured on, are the very things causing us to miss market opportunities and threats. I consider someone like Musk to be a category creator — someone who doesn’t rely on incremental innovation but instead changes the rules of the road entirely by creating a new category. In that landscape, our established modes of measurement just don’t work.

We don’t need to throw out all classic business metrics. But we should recognize their fundamental flaws and complement them with a new set of metrics. Essentially, we need bifocals for business metrics. Here are some of the areas I see as most ripe for change:

But even share of profit has two fundamental problems: It focuses your attention backward, to “what happened,” instead of forward, to “what will happen.” And it focuses your attention on your own performance or your competition, rather than on where market is headed. It’s a metric that’s better but still part of the problem.

The biggest problem is the very definition of “market.” Some define Tesla’s market as electric vehicles. But others say that Tesla is killing it in the large luxury car market, where the Model S is outselling Mercedes, BMW, and Porsche combined. Tesla’s ludicrous mode (where it goes from zero to 60 miles per hour in 2.5 seconds) has gotten a lot of attention, but what about Tesla’s “camper mode?” This isn’t an actual mode but rather a novel use case that a set of Tesla superconsumers have figured out, creating a whole subculture of camping in Teslas. That’s because the seats fold back to fit a person up to 6′ 9″ tall, it has a glass canopy overhead, and the Model 3 can maintain a comfortable temperature all night with just 7% of the battery. When category creators blur the lines we’re used to around a given market, your old measures don’t work as well and it’s much easier to get blindsided or surprised. The solution to this, which I’ve written about previously, is to enhance share-of-market metrics with share of growth.

Market penetration (what percent of people in the market buy your product) is another widely used and wildly misleading metric. If you have low market penetration, the assumption is that you can expect more people in the market to buy your product, whereas businesses with high market penetrations are at risk of being written off as tapped out. The core problem with market penetration is that it is often underestimated. This creates complacency, and leaders wind up overlooking opportunities.

For category creators, the underestimation issue is clearer. Tesla’s market penetration of electric cars is one thing, but if you add in luxury cars, the glamping/camping market, and others, then the addressable market becomes bigger, especially with the introduction of the more affordable Model 3. Are people who use budget hotels folks we can add to the addressable market? How about families who participate in travel sports leagues for their kids? How about consumers in the “staycation” market? What the Model 3 brings to market echoes what I suggested the Apple Car should be: your favorite parts of your home, on wheels. The upside for Tesla is much bigger than people realize.

Even for non-category-creating situations, we should realize that market penetration estimations are likely incorrect. Most penetration is calculated from data providers gathering transaction-level data. This is fine data to use on a longitudinal basis or on a relative basis. But it is not good for estimating the addressable market or market growth potential. Why? First, just because you bought something once in the past year doesn’t mean you use it, like it, and want it again. It’s about as elementary as kindergarten logic, where if two kids held hands once during recess, they were “married.” Transaction data tells you what people bought, not what they want — and sales are not the same as demand.

Second, market penetration is measured at the household level, not at the individual level. Just because my household bought kimchi doesn’t mean we all eat it and like it (sadly). The reason why Netflix allows multiple users per household and asks for separate logins is that data about the individual is valuable. Brands with greater than 50% household/transaction penetration may find their actual individual/usage (and liking) penetration to be much lower, which means those brands may still have upside to uncover.

My suggestion here is to flip market penetration into something I call problem penetration. What percentage of your customers or potential customers who have a problem (or unmet need) related to your product have addressed it with a viable solution and higher commitment? This flips the focus off of what we make and shifts it to the core problem that consumers and potential consumers want to solve. Too many companies I know don’t have a good grasp of what problem their product or category is trying to solve. Next, we need to measure how many are actually satisfied with their solution or workaround for the problem. This is the truest measure of the addressable market and how it can grow. For example, you might say 90 million households have a coffeemaker, so there isn’t much upside. And then Starbucks, Keurig, and Nespresso come along and show us that the core problem isn’t getting a cup of coffee but getting my ideal cup of coffee, when I want it, how I want it, wherever I want it.

Category creators are changing the world — and our metrics need to keep up.